Chicago Suburban Market Report First Quarter 2010

1. 1Q 2010
CHICAGO
Report
Report
SUBURBS
S T U D L E Y O F F I C E M A R K E T A N D S PA C E D ATA R E P O R T
MARKET HIGHLIGHTS Market Gains Some Ground
AVAILABILITY RATES FALL
Suburban Chicago’s overall availability
rate declined by 0.9 pp in the first quarter,
falling to 22.8%. The Class A rate dropped Market Overview
by 1.7 pp to 25.0%. Overall and Class A
rates have jumped by 0.9 pp and 0.8 pp, Overall availability in Suburban Chicago declined for the first time since midyear 2008, as several
respectively, from the prior-year period. larger leases helped the market gain some ground in the first quarter. Leasing activity increased
for the second quarter in a row, with particularly high volume in the Northwest Corridor. Although a
ASKING RENTS DECLINE few relocations in Schaumburg reduced the supply of space slightly, most of the leases will lead to
negative absorption in future quarters as companies leave behind more space than they move into.
Asking rents dropped from $20.86 last In general, most firms remain focused on cost-cutting and finding more efficient space.
quarter to $20.52 in the first quarter – a
quarterly decline of 1.6% and a year-on- The dramatic decline in asset values and difficulty in securing capital spurred more commercial
year fall of 8.0%. Class A properties were loan defaults. A combination of owner/users and opportunistic investors jumped off the sidelines
unchanged from last quarter, but fell 9.5% and boosted sales in the quarter – particularly transactions under $20 million.
year-on-year from $24.27 to $21.96.
East/West Corridor
LEASING ACTIVITY RISES
Net absorption, a key statistic in measuring office market activity, totaled -181,299 square feet in
Deal volume increased for the second the East/West Corridor during the first quarter (compared to -1.0 million square feet in the fourth
quarter in a row, increasing from 1.0 million quarter of 2009), a positive sign for an otherwise struggling suburban submarket. Overall rents
square feet to 1.5 million square feet. declined by $0.69 per square foot to $21.42 per square foot, versus $22.11 per square foot the
Class A volume nearly tripled, spiking from previous quarter.
429,601 square feet last quarter to 1.2
million square feet in the first quarter. The total availability rate for the EW market declined by 36 basis points from the fourth quarter of
2009, with the Class A rate experiencing a reduction of 123 basis points. No new leases of more
than 100,000 square feet were completed this quarter; however, several new large spaces became
available. Tenants occupying less than 50,000 square feet led market activity, with only one new
office lease of more than 50,000 square feet (Rasmussen Inc.’s 61,844-square foot lease at 1415
W. 22nd Street) completed this quarter.
As for marketed space, the EW market continues to lead all suburban markets with 31 available
blocks of space greater than 50,000 square feet. During the first quarter, this market was
responsible for 36% of all new space added to the suburban market. Additionally, the EW market
CLASS A TRANSACTION BAROMETER CLASS B TRANSACTION BAROMETER
Under OneQtr Over One Qtr Under OneQtr Over One Qtr
50,000 sf Change 50,000 sf Change 50,000 sf Change 50,000 sf Change
Average Term: 10 years 10 years Average Term: 10 years 10 years
Concessions: Concessions:
Free Rent 10-15 months 10-15 months Free Rent 10-12 months 10-12 months
Tenant Improvements $40-$45/sf $45-$50/sf Tenant Improvements $30-$35/sf $40-$45/sf
Outlook: Although availability declined for the first time in quite a while, tenants Outlook: Landlords in older properties have difficulty competing due to the generous
continued to downsize as they relocated, leaving behind bigger spaces concessions and discounted rents being offered in Class A buildings.
than they moved into. Concessions will remain elevated throughout 2010.
Up Down Unchanged

2. ($/sf) Rental Rate Trends continues to lead all submarkets in available sublease space, with nearly 20% more than the
$35 next closest suburban market.
$30
$24.27
$25
$21.96 Recently acquired Arboretum Lakes in Lisle completed one new lease, 29,800 square
$20
feet with SSAB Enterprises, and a 29,000-square foot renewal/expansion for SmartSignal
$20.13
$19.03
Corporation.
$15
$10 As the quarter ended, White Oak Realty Partners acquired Central Park of Lisle for $80
$5
Class A Class B
million from Tishman Speyer Properties. Tishman acquired the two-building complex and
$0 an adjacent parcel in 2006 for $108 million. White Oak Realty Partners, which was formed
1Q09 2Q09 3Q09 4Q09 1Q10 in February, partnered with New-York based Angelo Gordon & Company and locally based
Fulcrum Asset Advisors, LLC. The all-cash transaction included 3333 Warrenville Road, a
(msf) Four-Quarter Trailing Leasing Activity* 303,246-square foot building constructed in 2000, and 4225 Naperville Road, a 292,500-
3.0
Class A Class B & C square foot property built in 1990. The new owners will face an immediate challenge in
2.7 2.3
2.5 finding a tenant to occupy the 76,000 square feet of space that BP PLC is expected to
vacate in 2011. In addition, there are tenants in the building with relatively near-term lease
2.0 1.9
expirations, placing the building sale and price clearly in the “Value Add” category.
2.1
1.5
1.0 O’Hare
0.5
*Sum of leasing activity in prior four quarters O’Hare’s two largest leases of the first quarter were Valspar’s 40,000-square foot lease
0.0 at 8725 W. Higgins Road, the largest relocation in this submarket during the quarter,
1Q09 2Q09 3Q09 4Q09 1Q10
and DePaul University’s 38,000-square foot lease at Triangle Plaza, a close second. Net
absorption was negative with a total of -112,407 square feet, a slight improvement from the
(%) Availability Rate Trends
prior quarter. Overall rents fell by $0.34 per square foot, while Class A rents declined by
30%
25.0% $0.07 per square foot.
24.2%
25%
20% The one bright spot for the O’Hare submarket is the small inventory of sublease space.
20.5%
19.6% There are only 281,000 square feet of total sublease space available in the market.
15%
Additionally, during the first quarter, the number of big blocks of space (defined as 50,000
10% square feet and greater) was reduced to 18 from 19 in the previous quarter.
5%
While most landlords tried to weather the storm in the capital markets, owners of
Class A Class B & C International Tower became the latest to default. The property had an appraised value of
0%
$46 million in 2004, but with several major tenants departing and a subsequent 39% building
1Q09 2Q09 3Q09 4Q09 1Q10
vacancy rate, the appraised value decreased to $21.6 million in 2009. Glenstar Properties
Contiguous Block Supply
and its partner had a $34.3-million loan on the building.
35 4.0
# of Blocks over 50,000 sf
North
Combined SF of Contig Blocks (msf)
30 3.3 3.5
# of Contig Blocks over 50,000 sf
Combined sf - Contig Blocks
3.2
25
3.0 While many companies, including some of the submarket's largest tenants – CDW, Baxter,
20 2.6
2.5 Barilla and Acco Brands – continued to evaluate real estate strategies well in advance
15
of their current lease expiration dates, leasing activity in the North suburban market was
2.0
10
1.5
relatively nonexistent in the first quarter of the year. Tenants continued to vacate space,
5 1.5 relocating from leased space to corporate-owned facilities or downsizing significantly in
0 1.0 place by restructuring leases.
East-West Northwest North Corridor O'Hare
Corridor Corridor
MAJOR TRANSACTIONS
Tenant Sq Feet Address Market Area
Career Education Corporation 317,198 231 N Martingale Rd Northwest Corridor
FDIC 150,120 200 N Martingale Rd Northwest Corridor
American Pharmaceutical Partners 85,209 1501 E Woodfield Rd Northwest Corridor
Loyola University Health System 69,097 6800 N Frontage Rd East-West Corridor
University of Chicago 62,000 7955 & 8201 S. Cass East-West Corridor
Rasmussen Inc. 61,844 1415 W 22nd St East-West Corridor
Protective Life 47,000 2345 Waukegan Rd North Corridor
Valspar 40,000 8725-8745 W Higgins Rd O'Hare Area
Crawford and Company 38,900 1900 E Golf Rd Northwest Corridor
DePaul University 38,000 8770 W Bryn Mawr Ave O'Hare Area
CTS Corp 37,259 2375 Cabot East-West Corridor
SSAB Enterprises 29,800 801 Warrenville Rd East-West Corridor
SmartSignal Corporation 29,000 801 Warrenville Rd East-West Corridor
Laurus Technologies 27,750 1222 Hamilton Pky Northwest Corridor
Witt/Kiefer 22,000 2015 Spring Rd East-West Corridor
Sum of Top Leases 1,055,177 Sum of 1st Qtr Leasing Activity 1.5 MSF

3. The year started with Hamilton Partners' announcement of the acquisition of four small Overall Rental Rate Comparison
office buildings (750, 1110 and 1120 Lake Cook Road and 195 Arlington Heights Road)
US Index $28.59
in Buffalo Grove for nearly $20 million. The Multi-Employer Pension Trust sold the
four buildings, which total 215,325 square feet, for approximately $92 per square foot.
East-West Corridor $21.42
Hamilton Partners also officially began marketing several floors at Riverwalk, 2100
and 2150 E. Lake Cook Road, Buffalo Grove, vacated by Allstate. Allstate continues
North Corridor $20.98
to implement a corporate downsizing real estate strategy and is rumored to be likely
to vacate an additional 135,000 square feet at this complex prior to its 2013 lease
Suburban Total $20.52
expiration date.
Northwest Corridor $20.06
Northwest
O'Hare Area $18.53 Market
The Northwest submarket was the most active suburban submarket during the first Submarket
quarter of the year. Net absorption was slightly positive, reaching +81,299 square feet.
Type
In mid-January, Career Education Corporation signed a long-term lease for 317,198
square feet at 231 N. Martingale Road, Schaumburg, to consolidate its headquarters Existing Direct $21.96
and administrative functions located in several buildings scattered around the area.
A week later, the Federal Deposit Insurance Corporation (FDIC) signed a short-term New $19.44
lease for 150,120 square feet at 200 N. Martingale Road, Schaumburg. While the FDIC
transaction represents positive absorption in the market, Career Education will be cutting Sublet $16.94
its overall space by roughly 30%, leaving behind significant space that will be attractive
to tenants looking to take advantage of space that has useful existing configuration ($/sf) $0 $5 $10 $15 $20 $25 $30 $35
conditions. This is also an example of a situation where the marketplace has space
that will become available on a known timetable and the landlord is willing to execute
“forward lease commitments” for dates in the future. In the current environment, many Availability Rate Comparison
troubled landlords are willing to execute these types of transactions, sometimes as much
as two years in advance of the space actually being vacated. US Index 18.7%
Other significant news included Prime Group Realty Trust's $115-million loan default
on Continental Towers, a three-building office complex located at 1701 Golf Road, North Corridor 21.3%
Rolling Meadows, and the Rabine Group's acquisition of Three Woodfield Lake, 900
National Parkway, Schaumburg. The approximately 100,000-square foot 900 National
Parkway building was acquired from Hamilton Partners for roughly $30 per square foot.
O'Hare Area 21.9%
Rabine will initially occupy 10,000 square feet and will use the property as a showroom
to demonstrate its paving and roofing products. As the quarter ended, Imperial Realty
announced its purchase of Lake Center Plaza, 1699 Wall Street, Mount Prospect, for
$5.76 million, or approximately $39 per square foot, from Katz Management Group. Suburban Total 22.8%
East-West Corridor 23.2%
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Northwest Corridor 23.7%
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EMPLOYMENT TRENDS
Millions Chicago Millions National
4.80 2.0% 140 3.0%
Total Empl. % Ann. Change Total Empl. % Ann. Change
4.70 138
1.0% 2.0%
4.60 136
0.0% 1.0%
4.50
134
4.40 -1.0% 0.0%
132
4.30 -2.0% -1.0%
130
4.20
2010
-3.0% -2.0%
4.10 128
2010
-4.0% 126 -3.0%
4.00
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
3.90 -5.0% 124 -4.0%
Source: Bureau of Labor Statistics Source: Bureau of Labor Statistics
STUDLEY OFFICE MARKET AND SPACEDATA REPORT

4. MARKET SNAPSHOT: 1Q 2010
MAP SUBMARKET TOTAL LEASING & ABSORP. AVAILABLE SF AVAILABILITY RATE ASKING RENTS PER SF
Inventory Leas. Qtrly % 1 pp 1 % 1
SF Last Net This Change Last Yr This Change Last Yr This Change Last Yr
(1,000’s) 12 Abs. Qtr from Qtr Ago Qtr from Last Qtr Ago Qtr from Qtr Ago
(1)
Mos Last Qtr Qtr Last Qtr
#REF! #REF! #REF! #REF! #REF! #REF! #REF!
North Corridor 22,066 718 -83 4,706 -6.8% 5,048 4,143 21.3% -1.5% 22.9% 18.8% $20.98 1.6% $20.65 $23.94
1
North Corridor - Class A 12,888 474 13 3,066 -9.1% 3,373 2,943 23.8% -2.4% 26.2% 22.8% $21.59 3.0% $20.96 $24.91
1 675 17 9% 18 3% 13 1% $20 11 $20 20 $22 24
East-West Corridor 38,684 1,160 -181 8,966 -1.5% 9,105 8,733 23.2% -0.4% 23.5% 22.6% $21.42 -3.1% $22.11 $23.32
2
East-West Corridor - Class A 19,253 462 -186 4,356 -5.2% 4,594 4,044 22.6% -1.2% 23.9% 21.0% $22.93 -1.9% $23.38 $25.88
4 511 23 7% 23 2% 24 1% $19 90 $20 68 $20 82
O'Hare Area 17,495 729 -112 3,839 -3.1% 3,961 3,692 21.9% -0.7% 22.6% 21.1% $18.53 -1.8% $18.87 $21.49
3
O'Hare Area - Class A 7,657 333 -45 1,906 -6.7% 2,043 1,976 24.9% -1.8% 26.7% 25.8% $21.06 -0.4% $21.13 $24.29
1 919 19 7% 19 5% 17 4% $16 94 $17 16 $18 56
Northwest Corridor 31,776 1,738 81 7,520 -5.1% 7,921 7,529 23.7% -1.3% 24.9% 23.7% $20.06 -0.2% $20.11 $20.48
4
Northwest Corridor - Class A 15,100 1,019 96 4,383 -5.9% 4,661 4,339 29.0% -1.8% 30.9% 28.7% $21.31 1.0% $21.09 $21.78
19 5% 17 4%
SUBURBAN CHICAGO TOTAL 110,021 4,345 -295 25,032 -3.9% 26,035 24,097 22.8% -0.9% 23.7% 21.9% $20.52 -1.6% $20.86 $22.30
1-4
SUBURBAN CHICAGO TOTAL -
54,898 2,288 -122 13,712 -6.5% 14,670 13,302 25.0% -1.7% 26.7% 24.2% $21.96 0.0% $21.97 $24.27
Class A
(1) Percentage point change for availability rates.
Unless otherwise noted, all rents quoted throughout this report are average asking gross (full service) rents psf.
The information in this report is obtained from sources deemed reliable, but no representation is made as to the
accuracy thereof. Statistics compiled with the support of The CoStar Group.
Copyright © 2010 Studley
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STUDLEY OFFICE MARKET AND SPACEDATA REPORT